Until 2008, countries in the North seemed untouched by debt problems. |1| The crisis has completely changed this situation. Now, in particular Ireland, Greece, Portugal, and Eastern and Central European countries are feeling the devastating effects of the austerity policies applied since the 1980s.

Contrary to the declarations made by European leaders and the mainstream press, which contend that States’ debts are too high because of insufficient control of social spending, the increase in European public debt occurred after private organisations (principally businesses and banks) had become overly indebted. The causes of this excessive debt include:

insufficient tax revenues, particularly those paid by the wealthiest, on capital gains and company profits. This shortage is not an accident, it is the result of a series of tax breaks made to rich individuals and big corporations to the detriment of the general public. With the crisis came over-indebtedness, another cause of lower tax revenues and increased public debt;

austerity policies implemented, especially since 2010, that degrade public finances and hinder economic activity and increase unemployment. So, the excessive accumulation of business and bank debt chokes the economy. Austerity plans make the governments reduce spending rather than increase it to stimulate the economy and redistribute wealth: tax revenues collapse along with the economic activity, and public debt grows.

Table 5.2 – Direct public assistance to banks (from 2008 to 2012, in % of GDP) and State guarantees (in 2013, € billion): European Union |4|

Country

Direct public aid to banks ($ billion)

Direct public aid to banks (% of GDP)

Public guarantees to banks ($ billion)

Public guarantees to banks (% of GDP)

Ireland

63,0

38,4

66,4

40,5

Greece

35,1

19,3

73,7

28,1

Cyprus

1,7

10,1

6,7

6,1

Belgium

23,72

6,2

155,0

11,9

Spain

58,3

5,7

414,3

9,3

Denmark

11,0

4,4

100,8

0,5

UK

80,0

4,3

...

…

Portugal

6,8

4,1

67,1

9,9

Netherlands

18,7

3,1

244,1

2,7

Austria

9,4

3,0

126,8

2,4

Germany

65,7

2,4

1108,7

1,8

France

24,7

1,2

834,2

3,3

Italy

6,2

0,4

631,8

5,2

Total EU at 28

601,2

4,6

5292,8

3,9

Financial time bombs on those states’ accounts, not only the losses are socialised but also the risks

The UK is at the top of the list for public aid to banks (€80 billion), followed by Germany (€65.7 billion). However, the country that has the heaviest burden compared to the size of its economy is Ireland with 40% of GDP. Ireland is followed by Greece at 19%, Cyprus 10%, and Belgium |5| and Spain at around 6%.

Figures from 2013, the latest available, point to Spain as the country that has granted the highest total of guarantees (€95.1 billion), followed by Italy (€81.1 billion) and France (€65 billion). Nevertheless, Ireland and Greece remain the most heavily burdened by guarantees compared to the size of their economies (respectively 40% and 28%). These are financial time bombs on those states’ accounts, not only the losses are socialised but also the risks (in this case, banking risks).

The sense of injustice caused by the public bail-out of the banks has led to the formation of various social movements calling for public and democratic audits of public debt. |9| These audits under popular control seek to identify the part of public debt that is illegitimate, with a view to cancelling it. According to the CADTM, it is up to the authorities to take sovereign measures concerning illegitimate or illegal debts: there must be a firm, unilateral refusal to pay.

http://imf.org) through bail-outs fall into this category. Several factors point to the illegitimate nature of these debts incurred by governments under orders from the Troika: the measures have seriously damaged and attacked social and fundamental human rights; the people were not consulted about the policy changes that were made; finally, although at lower than market rates, they are still beyond the financial capacities of the people. For the CADTM, they are illegitimate debts and should be abolished.

IMF : http://www.worldbank.org/ policies applied to Greece are dramatic. |10| The following table compares the country’s principal macro-economic variables between the first quarters of the years 2008 and 2014.

In addition, in 2009 there were well over 950,000 people working in different public sectors. In December 2013, this number had dropped to 675,500, and in May 2014 it was no more than 590,900. Total wages dropped from €24.5 billion to €15.8 billion between 2009 and 2013. The brunt of this loss was taken by non-permanent employees, which fell from 148,600 in 2009 to only 12,200 in 2013. |12|

This huge drop, justified by accusations that civil servants were paid for doing nothing, was caused by the non-replacement of employees who retired, as well as by increased unemployment; again, for non-permanent ex-employees. Many public services are paralysed and those that continue to function, such as education, lack resources, and are doing no more than ticking over.

Another example of what could be considered illegitimate debt is the indebtedness caused by prohibiting central banks from lending directly to public authorities. As they cannot be financed by central banks, States have to seek funds on the financial markets where they issue sovereign bonds that are principally purchased by private banks. |13| This private monopoly de-legitimises a large proportion of public debt.

Likewise, Olivier Bonfond, economist at CADTM and CEPAG, has calculated the surcharge paid by the Belgian State in order to find funds on the financial markets. His graph below plots different curves: the dark blue line shows the debt trend as it actually happened. Between 1992 and 2012, Belgian debt was reduced to 100% of GDP from 135% of GDP. The other lines show that public debt would have been much lower if Belgium had been able to borrow from its central bank. The light blue line shows that if Belgium had borrowed at 1% from the Central bank, its debt would have been at 34% of GDP in 2012. In this case, Belgium would have saved €248 billion during this period. The orange line shows the same scenario, but at 0% interest rate. Belgian debt would have dropped from 135% of GDP in 1992 to 18% of GDP in 2012, and Belgium would have saved €306 billion. This graph clearly shows that a considerable proportion of Belgian public debt is illegitimate.

Chart 5.2 – Belgian debt trend as a % of GDP in function of lending rates from 1992 to 2012 |14|

What is more, if tax breaks to the richest 1% and to big business are taken into account, together with the costs of bank bail-outs, it is clear that Belgian national debt is very largely illegitimate.

Although the US is at the centre of the world economy, or perhaps for this reason, it has not been spared from uncontrolled growth in public and private debt. Households and individuals have been severely affected.

5.2.1. Trends in public and private US debt

Table 5.6 – Evolution of public and private US debt by sector (as a % of GDP), from 1980 to 2012: United States |16|

Sector

1980

1990

2000

2008

2012

Households

49

65

72

100

83

Non-financial companies

53

58

63

75

81

Financial corporation debt

18

44

87

119

89

State

35

54

47

55

93

5.2.2. The cost of bank bail-outs

Table 5.7 – The cost of bank bail-outs between 2008 and 2013 ($ billion): United States |17|

This table shows the various bank bail-out programmes in the US between 2008 and 2013, the first being the Troubled Asset Relief Programme (TARP) approved by G. W. Bush in October 2008.

Net assistance is the difference between the public funds injected into the programmes and the funds returned from the programmes. The positive figures are the funds injected that have not been returned. The guarantees are public guarantees of bank assets.

5.2.3. US bank balance sheets

We might have imagined that following the 2008 crisis, US financial institutions would suffer severe losses... not at all! Thanks to public funds they were rapidly back on their feet and once again enjoying high profits.

Where is the bail-out plan for these people to satisfy their basic right to housing?

While the banks were ‘still getting away with it’ thanks to public and central bank assistance, the plights of millions of US families, like hundreds of thousands in Spain, have been ignored by their government. Since 2005, an estimated 14 million US families have been evicted, and over 260,000 families in Spain suffered the same fate between 2008 and 2012. Where is the bail-out plan for these people that would enable them to satisfy their basic right to housing?

Table 5.8 – Number of evictions after repossessions of homes in the US and Spain from 2005 to 2012 |19|

USA

Spain

2005

532 833

-

2006

717 522

-

2007

1 285 873

-

2008

2 330 483

17 433

2009

2 824 674

22 493

2010

2 871 891

32 689

2011

1 887 777

40 740

2012*

1 836 634

147 442

Total

14 287 687

260 797

*The 2012 figure includes evictions by court rulings

Footnotes

|1| In the introduction, we saw that during the 1980s a number of European countries endured a largely forgotten debt crisis. The city of New York was also hit by a debt crisis at the turn of the 1980s (Harvey, David. A Brief History of Neoliberalism and Graeber, David. Debt: The First 5000 Years) as were European cities such as Liverpool in the UK and Antwerp and Liege in Belgium. Concerning Liege, see : ACiDe (Audit citoyen de la dette) / Collectif ACiDe liégeois, Aux origines de la dette de la ville de Liège, 21 July 2014, http://cadtm.org/Aux-origines-de-la-dette-de-la (French)

|5| CADTM has calculated a figure for Belgium considerably higher than the one mentioned in Table 5.2. Our figure is €32.6 billion, 8.5% of GDP, higher than the official figure of €23.7 billion. The CADTM calculations are based on figures from SFP finance and the Belgian national audit office, and are as follows (€ billion): bail-out of Dexia (8.9) + Fortis (15.2) + KBC (7) + Ethias (1.5) = €32,6 billion. In the case of Belgium, and certainly in other cases as well, official figures underestimate the real value of public aid to banks.

|8| Article 135 of the Spanish Constitution was modified after agreement between the two principal political parties, the Popular Party (conservative) and the PSOE (socialist), the latter had previously proposed the same reform in August 2011. The constitutional amendment was passed (as in Italy) without a consultative referendum.

|9| Many of these groups are united under the ICAN (International Citizen debt Audit Network http://www.citizen-audit.net/) banner. In addition to European organisations, there are also Tunisian and Egyptian groups.

|12| From the article Assessment? No thanks!, in the Greek newspaper Efimerida ton Syntakton, 25 August 2014, Based on figures from the Ministry of Administrative Reform.

|13| Central Bank lending to States is prohibited in the Eurozone by article 21.1 of the ECB statutes, in the US by section 14 (b) of the Federal Reserve Act, in Japan by article 5 of the public finance law. For the Bank of England and other EU central banks (including those not affiliated to eurozone) this method of funding is prohibited by Article 123 of the Lisbon Treaty, which confirms articles already existing in the 1992 Maastricht Treaty.

|14| Source: calculated by Olivier Bonfond using National bank of Belgium (BNB) figures.

|15| Source: Citizen’s Public debt Audit Collective (CAC), Que faire de la dette ? Un audit de la dette publique de la France (What is to be done about the debt? An audit of France’s public debt), France, May 2014; Based on Figures from INSEE, national statistics office, France. (http://fr.scribd.com/doc/225813263/Audit-de-la-dette-publique)

|16| Source: Federal Reserve of the United States: Flow of Funds Federal Reserve, 25 September 2013; and Flow of Funds Matrix, 2012.National debt includes both Federal and other government debt.

is a 30-year-old post-Keynesian economist from Bogotá, Colombia. MPAff. LBJ School of Public Affairs at the University of Texas at Austin.
From March to July 2015 he worked as a close aide to former Greek finance minister Yanis Varoufakis, advising him on issues of fiscal policy and debt sustainability.
He was previously fiscal advisor to the Ministry of Finance of Colombia and special advisor on Foreign Direct Investment for the Ministry of Foreign Affairs of Ecuador.
He is considered to be one of the foremost figures in the study of Latin American public debt. He is member of CADTM AYNA.